Walk me through a two-stage sell-side auction process from engagement to closing, naming the key documents at each stage.
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The answer
A two-stage sell-side auction moves from mandate engagement through first and second rounds to negotiation, signing, and closing.
- After winning the mandate, we sign an engagement letter and prepare a one-page anonymous teaser, the full confidential information memorandum, and a process letter that sets the bid deadline.
- In the first round, the teaser goes out; interested buyers sign an NDA and then receive the CIM and process letter. They submit non-binding indications of interest with a valuation range and financing sources.
- We select three to eight buyers for the second round. They get management presentations, full data room access, and a draft sale and purchase agreement from the seller's counsel.
- For final bids, each buyer submits a single price, a markup of the draft SPA, and commitment papers such as debt commitment letters. We evaluate bids on price, contract terms, and certainty.
- The seller may grant short exclusivity to the winner for final diligence and SPA negotiation, leading to board approval and signing of the definitive agreement.
- Signing is separate from closing. Closing follows once conditions are satisfied: HSR antitrust clearance, a shareholder vote if public, financing funding, and no material adverse change.
Accretion / dilution
| Acquirer standalone net income | 300 |
| + Target net income | 80 |
| + After-tax synergies | 15 |
| − After-tax incremental interest | (10) |
| Pro forma combined net income | 385 |
| Acquirer standalone EPS | $3.00 |
| Pro forma share count | 125 |
| Pro forma EPS | $3.08 |
| Accretion | 2.7% |
Illustrative figures
Also asked as
- What is the difference between a teaser and a CIM, and why does the NDA sit between them?
- Why are signing and closing separate events, and what typically has to happen in between for a public target?
- What does a buy-side advisor actually do for an acquirer during an auction, and how do its incentives differ from the sell-side advisor's?
- A seller can run a broad auction, a targeted auction, or an exclusive negotiation. Give the trade-offs of each and describe a situation where the exclusive negotiation is the right call.
- Final bids arrive with different SPA markups and financing packages. Explain the three dimensions on which a seller evaluates final bids, and why the highest headline price does not always win.
- Compare a one-step merger to a two-step tender offer for acquiring a public company: mechanics, timeline, and when each is preferred. Why did LBO take-privates historically favor the one-step structure?
- Your sell-side client receives a pre-emptive bid at a full valuation before the auction launches, conditioned on 30 days of exclusivity. The bidder is her largest competitor. Lay out how you would advise her, including at least three specific protections you would negotiate before granting exclusivity.
- Public target, unaffected price $50. Bid A: $70 cash from a strategic with a 75% probability of clearing antitrust in 12 months and a $3/share reverse termination fee; if blocked, the stock returns to $52. Bid B: $65 cash from a sponsor with committed financing, 98% close probability in 4 months. Using a 10% annual discount rate, compute the risk-adjusted present value of each bid, recommend one, and then solve for the reverse termination fee that would make you indifferent.
- A sponsor take-private signs with a 35-day go-shop, a 1.5% breakup fee during the go-shop stepping to 3.0% after, and 4-business-day matching rights. On day 20 a strategic submits a bid 6% above the deal price. As advisor to the target board, walk through the sequence of decisions and obligations from that moment to a final outcome, including how the fee and matching rights shape the strategic's effective cost.
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Running the deal: process and defense